When an annuity is not right for you
We sell annuities, so you should hear this from us plainly: for many people, an annuity is the wrong choice. Here are the situations where we will tell you not to buy one.
An annuity is a long-term contract with an insurance company. It trades access and some growth for protection from losses, tax deferral or lifetime income. That trade only works if you can live with what you give up. If any of the situations below describes you, an annuity is probably not right, at least not yet.
-
You may need the money soon
Most annuities have a surrender period of several years. Taking out more than the free amount during that time costs a surrender charge, and sometimes a market value adjustment. If you might need this money for a home, a car, a family member or medical bills before the surrender period ends, keep it somewhere you can reach.
-
You do not have an emergency fund
Before any long-term contract, set aside money you can reach quickly for surprises. If an annuity would leave you with nothing accessible, the timing is wrong.
-
You are carrying high-interest debt
Interest on credit cards and similar debt usually costs more than a fixed or fixed indexed annuity is likely to credit. Paying the debt down first is often the better use of the money.
-
Your guaranteed income already covers your essentials
If Social Security, a pension or other steady income already pays your essential bills, buying more guaranteed income may add cost without solving a real problem.
-
It would be most of what you have
Tying up the majority of your savings in one long-term contract leaves little room for change. Annuities usually make sense, if at all, for a portion of your money.
-
Your time horizon is short
If you expect to need the money, or your health suggests a shorter life expectancy, the long commitment and lifetime-income features may work against you.
-
Leaving the most money to heirs is your top goal
Lifetime income options and riders are built to pay you. Fees and life-only payouts can reduce what is left. Life insurance or a simple beneficiary designation may do this job better.
-
You want the full growth of the market
Fixed and fixed indexed annuities limit your gains in exchange for avoiding market losses. If you want all of the upside and can accept the downside, an annuity is the wrong tool.
-
You would be replacing an annuity you already own
A new contract usually starts a new surrender period, and you may lose features you already have. Sometimes a replacement helps, but it should come with a written comparison. Often the right answer is to keep what you have.
-
You do not understand it yet
If you cannot explain in your own words how the contract credits interest, what it costs and how to get your money out, do not sign. Ask more questions, or walk away.
-
You feel rushed
A good recommendation is still good next week. Any pressure to decide today is a reason to slow down.
What to look at first instead
- Build an emergency fund you can reach quickly.
- Pay down high-interest debt.
- Work out your monthly income gap. You may not have one.
- Learn how the age you claim Social Security changes your benefit. The Social Security Administration has calculators at ssa.gov.
- Check your beneficiary designations on the accounts and policies you already own.
What we promise
If an annuity is not right for you, we will say so, in writing if you like, even though it means we are not paid. If an annuity might fit, we will show you the costs, the surrender schedule and how we are paid before you decide. You can read more about how we work.
Questions are free.
Book a 20-minute conversation, or send us a question by email. No cost, no obligation, and we never sell your information.